Dang, it's getting cold out there!

[kidgas]

Nickolai Kondratieff (1892-1938) was a Russian economist who theorized that capitalist economies underwent long waves of boom and bust cycles. A complete revolution would last about 50-60 years. Kondratieff based his theory on a study of prices and interest rates from 1789-1926. He felt that relatively cheap prices at the end of a bust led to accumulation of goods and assets. The increased demand led to increasing prices, leading to more demand and more consumption. Eventually, prices get out of control as does debt. The increased prices are unsustainable, leading to a bust (deflation and depression), purging of debt and a repeat of the cycle.

Here is a nice summary:

http://www.kwaves.com/kond_overview.htm

The question that is begged from all this info and should be demanded by this forum is:

What should I invest in now? Here is a wonderful graphic from which I would like to highlight a few points:

http://www.kwaves.com/kond_overview.htm

First of all, the characteristics of winter
· Consumer confidence falls and reaches a state of despair
· Unemployment starts from relatively low levels to reach exponential levels
· Debt repudiation—significant bankruptcies in government, corporations, consumers
· Banking crises and failures
· Credit crunch
· International currency crisis
· Gold and gold equities rise

Wow, it is like a freaking road map!!!!

I believe the following are important investments and will share my reasons:

1. Winter investments of cash, gold, tangible assets. Unlike the table, I question bonds.
· Cash is useful to purchase beaten down assets going into spring. I am getting my cash from my ongoing profession. Right now, I consider this my greatest asset.
· Gold is useful since it has the potential to increase during times of economic upheaval. Then it can be sold for greater amounts of cash to purchase the beaten down shares and real estate heading into spring. I own some physical gold and silver and currently one-third of my retirement portfolio is in GG
· Tangible assets and the stocks of same. People still have to live day-to-day and commerce will not stop. Slow down, yes, but not stop. Stocks of grocers, utilites, possibly health care. I own ONXX since I feel that people will continue to get and treat cancer despite the recession. I also own DRYS since goods will continue to ship, eventually. With the decrease in the Baltic Dry Index, many new shipbuilds might be cancelled bringing supply and demand into equilibrium. They should be poised to benefit from the onset of spring.
2. Spring investments of stocks and real estate.
· I believe real estate that cashflows now will set one up for spring. I own 6 SFR that roughly break even if one is empty. I am looking at long term buy and hold. I hope to add to these in the next several years. Right now, however, a partner who owns a printing business and I are finishing a small commercial building (5000 sq ft) for his shop that has room for one tenant (about 1500 sq ft). He obtained an SBA loan, and we split 50-50 on the building. He will pay rent that covers the majority of the monthly expense. I have put in about $41,000 so far. The building and land appraised for about $750,000. Worst case: No tenant for the next 20 years. I have to split CAM, taxes, repairs. $500/month plus major maintenance to repair roof or repave, say $50,000. I put in $211,000 and have half a paid off building in twenty years.
· I think it is important to start looking at stocks as an investment. Now is the time to begin nibbling in the market. Look at this link:

http://home.earthlink.net/~intelligentbear/com-dow-au.htm

The bottoms of the ratio are in 1932 and 1980 (48 years apart). The peaks are in 1929, 1967, and 2000 (38 and 33 years apart). We are now 28 years from the last bottom of Dow:Gold ratio. This seems to support some sort of long wave theory of 30-50 years. I suspect we are within 10 years of a bottom. It won’t be long before stocks are trading at less than the cash on the balance sheet. A shrewd investor could come in and take a company private for free. It wasn’t long ago that AAPL was trading for less than cash. The enterprise value for DRYS is 3.4 Billion but the market cap is only 831 million. They have $6.75 cash per share. They do have debt which could be potentially dangerous, but there is some cash flow.

I have stated elsewhere that I believe the DOW:Gold ratio will bottom in the neighborhood of 7-8. Using 8579 and about 915, it stands at 9.4. It could certainly go lower than 7, but I think it may be time to start dipping in the big toe. Of course, I am big on protecting a major chunk of your capital and use collars since I can’t attend to the market on a consistent, daily basis. See my thread on stock collars for my retirement account. Fortunately, I don’t plan on touching it for 30 years.

Anyway, those are my thoughts for this market. To summarize, start thinking about getting greedy because there sure are a lot of fearful people out there.

 

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